Hyper Track | Samsung Electronics' net profit surged 470% in the second quarter

Author: Zhou Yuan Wall Street News

Samsung really made a huge profit. On July 5th, Samsung Electronics announced that its performance in the second quarter of this year (April-June) would achieve a substantial year-on-year growth. Now, the performance forecasted in this announcement has become a reality.

In this just released second quarter performance report, Samsung Electronics optimistically predicts that the demand for AI-driven chips will continue to grow strongly in the second half of this year.

This has injected a strong boost into the continuous decline of US AI chip stocks since July 11th. As of the time of writing (7:42 AM Eastern Time/7:42 PM Beijing Time), US AI chip stocks have seen a significant rebound in pre-market trading, with NVIDIA rebounding by 6.53% and AMD by 8.55%.

Highlights and Concerns in the Impressive Performance

On July 31st, Samsung Electronics announced its second quarter performance report, showing that during the reporting period, Samsung Electronics' operating profit was 10.4439 trillion Korean won (approximately $7.6 billion/54.7 billion RMB), a huge increase of 1462.29% year-on-year. The sales revenue was 74.07 trillion Korean won (approximately $54.0 billion/3889.42 billion RMB), a year-on-year growth of 23.44%.

This marks the second time Samsung Electronics' quarterly operating profit has exceeded 10 trillion Korean won since the third quarter of 2022. During the same period, it achieved a net profit of 9.8413 trillion Korean won (approximately $7.2 billion/519.91 billion RMB), a dramatic increase of 470.97% year-on-year. The sales revenue for the reporting period also reached its highest level since the same period in 2021.

This is also the fastest net income growth rate for Samsung Electronics since 2010. The AI boom has driven the profit growth of Samsung Electronics' semiconductor division.

In terms of revenue structure: the Digital Solutions (DS) division responsible for the semiconductor business had sales of 28.56 trillion Korean won (approximately $20.8 billion/1501.97 billion RMB) and an operating profit of 6.45 trillion Korean won (approximately $4.7 billion/339.40 billion RMB). This marks the second consecutive profitable quarter for Samsung Electronics after four consecutive quarters of losses.

The Device Experience (DX) division had sales of 42.07 trillion Korean won (approximately $30.7 billion/2216.97 billion RMB) and an operating profit of 2.72 trillion Korean won (approximately $2.0 billion/14.44 billion RMB).

Among them, the sales of the Mobile Experience (MX) business, which includes smartphones, decreased compared to the previous quarter, mainly due to the second quarter being a slow season for smartphone sales. Samsung Electronics expects that "due to seasonal softness, smartphone demand will decline quarter-on-quarter, especially in the high-end market, which will see growth in the second half of the year; however, the mass market will experience a slowdown in growth".

In the first half of this year, with continuous increase in memory prices and strong demand for High Bandwidth Memory (HBM) chips, Samsung Electronics also benefited.

Samsung Electronics stated that it expects strong demand in the second half of the year for server products including HBM and SSD. "To expand capacity to meet new demands for HBM and DRAM, Samsung Electronics will further restrict the supply of traditional memory chips." This confirms previous industry reports that Samsung Electronics will reduce the supply of traditional DRAM chips to increase HBM supply capacity Currently, Samsung Electronics is weaker than its competitor SK Hynix in the technical competition to supply NVIDIA's HBM products. Samsung Electronics is increasing its resource investment in this area to catch up with SK Hynix's technical advantage.

Market analysis agencies believe that Samsung's operating profit in the second quarter is 25% higher than the market's general expectations, indicating that Samsung Electronics' DRAM and NAND average selling prices have started to rise. With the possibility of seasonal growth in memory chip demand in the second half of the year, Samsung's profit is expected to further increase.

CLSA stated in its previous forecast report for Samsung Electronics' second quarter that "the average selling price of memory is expected to continue to rise in the coming quarters, and we expect Samsung Electronics' quarterly profit to continue to grow until 2025."

AI Server Demand and Foundry Business

According to Samsung Electronics' financial report, "In the second half of 2024, as major cloud service providers and enterprises expand their AI investments, it is expected that AI servers will occupy a larger market share in memory."

AI servers, equipped with HBM, have higher single-box memory capacity compared to traditional DRAM and SSD, so demand for HBM, DDR5, and server SSDs is expected to remain strong overall.

Samsung Electronics has become the first in the industry to mass-produce 128GB products based on 1B nanometer (nm) 132GB DDR5, consolidating its leading position in the DDR5 market.

Just as AI accelerator cards require HBM, the demand for HBM, DDR5, and SSD in AI servers will also suppress traditional server memory capacity.

It is worth mentioning that in today's second quarter 2024 earnings conference call, Samsung Electronics confirmed for the first time the existence of its new generation mobile processor Exynos 2500 chip.

The Exynos 2500 chip uses a 3nm process and is Samsung's second 3nm chip (GAA process: Gate-All-Around) after the Exynos W1000, with the Galaxy S25 (including S25+) series smartphones expected to be equipped with this chip.

The design work and revenue generated by this chip will fall under Samsung Electronics' System LSI business unit. Samsung Electronics' financial report states that the LSI business achieved record sales in the first half of this year, with improved profitability in the second quarter.

Samsung Electronics stated that the System LSI business will focus on expanding the application of 200-megapixel sensors from the main wide-angle camera to the telephoto camera; at the same time, it will expand the sales of DDI (Display Driver IC) products by starting mass production of new models for U.S. customers.

In terms of the foundry business, the revenue of this business also improved during the reporting period. Samsung Electronics expects that in the second half of this year, wafer foundry business revenue is expected to rebound with mobile demand, and AI/HPC application demand will continue to grow; in 2024, with the full-scale production of the second generation 3nm GAA technology, the revenue growth of the foundry business is expected to exceed the market average level